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MCX Sees ACH As Interchange Salvation. Many Chains Not So Sure
Another concern is how quickly MCX could launch with actual deployments, with several saying that meaningful deployment is likely one year away and maybe even two years away. One executive at a participating retailer said the timing is tricky. “We would rather get something to the market sooner rather than later, but we want to do it the right way,” he said, adding that anything more than two years would cripple the effort. “Longer than that would start to border on the absurd.”
On the backend side, Gemalto—which is behind the ISIS trial—is also providing the technology for MCX. First Data is involved, too.
The exclusivity issue is a concern that speaks to the fundamental challenge of all mobile payment wallets. What will get shoppers to move from magstripe to mobile payment? With no talk of major consumer incentives, it’s unclear what a likely adoption rate would be. Given that so many retailers will presumably not be part of MCX, are the participating chains really going to refuse to accept PayPal, Google Wallet or ISIS, especially if those approaches have gathered substantial marketshare by the time MCX rolls out?
MCX members have spoken eloquently about how much better it is for retailers to have to support only one mobile platform. That’s true, of course. But why would this help shoppers? Shoppers are used to going to Target and Walmart and being able to pay with a wide range of methods—Visa, MasterCard, checks, cash, debit cards, giftcards, etc. Will these same shoppers agree to one mobile payment app as the only one accepted?
One person who has talked extensively with MCX described the most likely payment process: “The user enrolls his normal FI-issued debit card into the cloud upon registration. When presented at POS, seemingly as a pseudo card number of some sort, the transaction authorization request traverses the NYCE network path, which is serving as the backbone for MCX (now that FIS is essentially private labeling it). The authorization itself could well be done by the cloud, eventually, but the important point is that FIS converts the tokenized pseudo number to either the original debit card BIN and/or an ACH number,” she said. “Once the authorization is passed back, the debit to the funding account converts to ACH. The net cost to the accepting merchant will be about $0.04; $0.02 will go to the FI to process the ACH payment to the merchant and the other $0.02 will go to technology-providing partners (and a little bit to fund MCX).”
One retail concern that has haunted the group since its launch is the perception—with more than a little justification—that Walmart is playing an ultra-dominant role. Granted, other retailers are certainly involved, but Walmart began the effort and one of its executives—Walmart VP and Assistant Treasurer Mike Cook—is seen as the group’s de facto CEO. Some have come to jokingly suggest that MCX stands for the Mike Cook Exchange.
The suggestion that many of the chains involved are there to closely watch Walmart (“keep your friends close and your enemies closer”) is still alive and well.
Another person who has been actively involved with MCX’s formation and rollout questioned whether the long delays—inevitable when so many large retailers are involved—might themselves kill the effort. “It’s such a long game to get it going. Did they not read about what is happening with ISIS?” the executive asked, adding that there is a certain amount of “arrogance” in the belief “that retailers will follow along with this to just save interchange dollars.”
The best way to make any payment work is by simply making it much more attractive to shoppers than the alternative. The arguably most effective launch of any wireless product happened in the early 1990s when toll payment system E-ZPass launched.
Did it stress that participating would get users their own lanes? Nope, that was mere icing. The benefit was that drivers would pay a significant amount less when using E-ZPass compared to paying the old-fashioned way. Framed that way, the question was never, “Why do it?” It was flipped instantly into: “Why not?”
Walmart, Target and the others are mesmerized by the possibility of undermining interchange and creating a better environment for retailers. Will it be a strong enough motivation to take a good chunk of those savings and offer to charge less for purchases made through the MCX mobile app? We don’t think so, either.